BILL ANALYSIS



C.S.H.B. 2924
By: Cook
03-30-95
Committee Report (Substituted)


BACKGROUND

Frequently, in divorce situations and in the probation of estates,
one party, will seek to acquire the interest of the other or others
in property which the acquiring person presently occupies as a
homestead.  In situations where the acquiring person must seek
financing in order to acquire the interest of the other party,
lenders will not loan funds only on the security of the interest of
the conveying party, but are willing to provide funding on the
security on the entirety of the interest in the property including
that of the acquiring party. Should the lender have to foreclose on
the property, if the security was only a partial interest in the
property, the lender upon foreclosure would become a co-tenant with
the very person to whom it loaned money.  Consequently, financing
under such circumstances is severely limited unless the lender can
receive security on the entirety of the property being conveyed. 
Texas courts, most notably bankruptcy courts, have called into
question the practice of taking a lien upon the entirety of the
property including that of both the conveying and acquiring
parties.  This practice is known as "owelty of partition".  The
Texas Constitution, Article XVI, Section 50 protects the homestead
from forced sale for the payment of all debts with certain
exceptions, one of which is for the purchase money thereon. 
Nothing in the Texas Constitution prohibits the Legislature from
defining the term "purchase money" so long as the definition
constitutes reasonable interpretations of the Constitution and does
not do violence to its plain meaning and intent.

Another issue that requires addressing is the situation created
under the Supremacy Clause of The United States Constitution where
federal tax liens can be enforced against Texas homestead property
pursuant to Section 6321 of the Internal Revenue Code.  Recent
court decisions have held that a third party lender cannot be
subrogated to the rights of the Internal Revenue Service pursuant
to such federal tax liens when the lender advanced funds to the tax
debtor to pay off the tax lien taking as security the homestead
property against which the lien applied.  Under these
circumstances, homestead property owners facing the loss of their
homestead through foreclosure of the federal tax lien by the
Internal Revenue Service cannot arrange for a third party loan
secured by the homestead property to  pay off the federal tax
obligation and refinance the debt.

PURPOSE

The purpose of the Bill is to enable divorcing spouses and heirs
(in probate situations) to obtain appropriate financing to resolve
property disputes in divorce and to facilitate probate of estates,
as the case may be.  The Bill addresses the definition of "purchase
money" to enable Texas courts to apply an owelty of partition lien
to the interest already owned by the borrower as well as the
interest being acquired by the borrower and thus smooth out the
transitions inevitable in divorces and deaths.

Also, as proposed, the Bill would allow a valid lien to be imposed
upon homestead property when refinancing an existing federal tax
lien by defining "taxes" to include federal tax liens and by
including such liens in the definition of encumbrances in the Texas
Property Code.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency, or institution.



SECTION BY SECTION ANALYSIS

SECTION 1: Amends Section 41.001(b) Texas Property Code to define
           "purchase money" to include consideration for an owelty
           of partition imposed against the entirety of the
           property by court order or written agreement.  Defines
           taxes on homestead property to include ad valorem
           property taxes and federal taxes and refinances by third
           parties of ad valorem taxes or federal tax liens.

SECTION 2: Effective Date:  September 1, 1995

SECTION 3: Emergency clause.


COMPARISON OF ORIGINAL TO SUBSTITUTE

The Bill as proposed would have clarified the definition of rural
homestead by defining it as being located outside of an
incorporated city.  The substitute deletes this language (SECTION
2 of the original bill).

SUMMARY OF COMMITTEE ACTION

The committee considered HB 2924 in a public hearing on April 3,
1995.

The committee considered a complete committee substitute for the
bill.
The committee considered an amendment to the substitute which was
adopted without objection.

The following people testified in favor of the bill:
Rep. Cook; and
John F. Rothermel III.

The motion to adopt the committee substitute as amended and report
the bill favorably as substituted, with the recommendation that it
do pass and be printed, prevailed by the following record vote:  9
Ayes, 0 Nays, 0 PNV, 0 Absent. 

The Chair instructed the Clerk to incorporate the amendment into
the substitute.